Banks are financial intermediaries that use deposits of its customers, which are liquid assets, to finance the illiquid investments of borrowers.

Question

Quizplus · Accepted Answer

This statement is true. Banks take in deposits from their customers, which are liquid assets, and then lend out those funds to borrowers for long-term, illiquid investments such as mortgages or business loans. This process of borrowing and lending is what enables banks to earn a profit by charging interest on the loans they make.

Banks Are Financial Intermediaries That Use Deposits of Its Customers